Clearstream paves the way towards seamless local JGB mobilisation to cover global exposures

Clearstream and Sumitomo Mitsui Banking Corporation (SMBC) are collaborating with the aim of developing a collateral management service for their mutual customers. The service will enable mutual customers to consolidate their Japanese government bonds (JGBs) held across both institutions into one single pool to perform triparty collateral management transactions with any Clearstream collateral receiver.

The service will be part of Clearstream’s integrated collateral management offering, the Global Liquidity Hub. Whereas Clearstream already offers triparty collateral management services for JGBs via its international central securities depository (ICSD), this service will now be extended to JGBs under local custody with a Japanese bank. Thanks to their investment grade rating, JGBs are attractive as high-quality collateral but until the launch of this new service cross-border mobilisation remains cumbersome and expensive.

What makes the new service unique in the financial industry is the opportunity for customers to keep their JGBs with the local Japanese custodian while an optimised and automated allocation into other timezones and markets is performed in real-time by Clearstream, however only up to the required amount.

The system will always allocate the ‘ideal’ collateral, meaning the cheapest collateral option to match the underlying exposure requirements. When the assets are required for local settlement in the Japanese market or are no longer needed for triparty purposes, they are returned automatically to the customer’s local settlement account at SMBC.

Stefan Lepp, Member of the Executive Board and Head of Global Securities Financing at Clearstream: “The market has long been looking for ways to mobilise JGBs locally to meet the growing global demand for high quality collateral. This partnership with SMBC is part of Clearstream’s extensive efforts to give our customers access to a top quality, global pool of collateral to meet upcoming regulations which will mandate increased central clearing and collateralisation of derivative trades, amongst others. We are very pleased to have SMBC on board for this pioneering solution to mobilise locally held JGBs to cover globally fragmented exposures. This partnership enables our mutual customers to benefit from the best of both worlds: Clearstream’s fully automated global collateral management as well as comprehensive local custodian services by SMBC.”

The Global Liquidity Hub is Clearstream’s integrated liquidity and collateral management environment. This partnership enables customers of SMBC to benefit from Clearstream’s collateral management services to use their domestically held assets for triparty transactions in the Global Liquidity Hub.

Customers will have access to the Global Liquidity Hub’s full suite of services, including collateral allocation, optimisation and substitution without having to move their assets out of proven and well established custody locations.